ENG-2002 — Page 559

Table 12

APPENDICES

(Chapter 4: Financial and Monetary Affairs)

Exchange Fund Balance Sheet

$ Million

As at end of year

1997

2001

2002

Assests (1)

Foreign currency assets Hong Kong dollar assets

Liabilities (1)

588.475

877,427

891,632

48,198

101,719

63,433

636,673

979,146

955,065

Certificates of Indebtedness (2)

87,015

107,545

118,475

Coins in circulation

5,399

5,691

5,891

Balance of banking system

(3)

296 .

671

525

Exchange Fund Bills and Notes

89,338

118,157

122,925

Placements by other HKSAR government funds (4)

237,629

380,602

301,669

Other liabilities (5)

26,770

63,891

78,406

446,447

676,557

627,891

Accumulated Surplus

190,226

302,589

327,174

Notes: (1) Assets and liabilities include the following accounts:

(a) Investment

The Fund is invested in interest-bearing placements with banks and other financial institutions both in Hong Kong and outside Hong Kong and in a variety of financial instruments, including bonds, notes, treasury bills and equities.

(b) Foreign currency assets distribution

A large proportion of the Fund's foreign currency assets is held in US dollars. Apart from US dollar, the Fund also holds assets denominated in fully convertible foreign currencies.

(c) Location of assets

The assets are held in deposit, trustee and safe-keeping accounts with banks, central banks and custodial organisations situated in Hong Kong and other major financial centres.

(d) Valuation of assets and liabilities

Debt securities, equities and Exchange Fund Bills and Notes are valued in the accounts at market value at the balance sheet date. Placements with banks and other financial institutions, certificates of deposit, consideration received or paid under repurchase and resale agreements, securities lending agreements, placements by banks and other financial institutions, placements by other HKSAR government funds for which interest is payable at market-based rates and placements by Hong Kong statutory bodies are valued according to a price matrix of discounted cash flows using applicable interest rates for discounting. The consequential change in value of the asset or liability is reflected in the carrying value of the relevant asset or liability in the Balance Sheet except in the case of placements by other HKSAR government funds for which interest is payable at market-based rates, which are stated in the Balance Sheet at the principal amounts payable at the balance sheet date with the revaluation differences included in other liabilities. Placements by other HKSAR government funds for which interest is payable at rates determined by reference to the investment income of the Fund are stated at the principal amounts payable at the balance sheet date.

(e) Translation of foreign currency assets and liabilities

Assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. Exchange gains and losses on foreign currency assets and liabilities are included in the Income and Expenditure Account. Certificates of Indebtedness, government-issued currency notes and coins. Coins in Circulation, all of which are denominated in Hong Kong dollars but are issued and redeemed in US dollars at the linked exchange rate of US$1-$7.80, are stated in the accounts at their Hong Kong dollar face value. At the balance sheet date the difference between their Hong Kong dollar face value and the market value of the US dollars required for their redemption is included in other assets.

(2) As backing for the bank note issues, each note-issuing bank is required to hold a non-interest bearing Certificate of Indebtedness issued by the Financial Secretary. Payments for the issuance and redemption of notes against these Certificates are made in US dollars at a fixed rate of US$1=HK$7.80.

(3) Under the interbank payment system based on Real Time Gross Settlement principles, all licensed banks maintain a clearing account with the Hong Kong Monetary Authority for the account of the Exchange Fund. The aggregate balance in these accounts represents the total level of liquidity in the interbank market.

(4) These represent placements by other HKSAR government funds with the Exchange Fund. Until 31 March 1998, all placements by other HKSAR government funds bore interest at market-based rates. With effect from 1 April 1998, the basis of interest payable on certain placements by other HKSAR government funds was amended from market-based rates to rates determined by reference to the investment income of the Fund.

(5) Other liabilities include placements by banks and other financial institutions, placements by Hong Kong statutory bodies, interest payable on Exchange Fund Notes and placements by other HKSAR government funds, revaluation losses on off-balance sheet items which are marked to market, other accrued expenses and provisions and the revaluation differences of placements by other HKSAR government funds for which interest is payable at market-based rates.

Source: Hong Kong Monetary Authority.

(Enquiry Telephone No.: 2878 8222)

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